Thursday, June 05, 2008

Las Vegas's Economic Downturn Getting Worse

My thanks to Patrick and PDM for several of the tips/links:

Developers scrap $5 billion Las Vegas casino plan

A development group planning to build a 5,000-room hotel and skyscraper on the Las Vegas Strip has scrapped the project, owing to difficult credit- market conditions, according to one of the partners in the joint venture Wednesday.

Casino company Crown Ltd., (AU:CWN: news, chart, profile) headed by the Australian investor James Packer, said it and its partners, the private-equity firm York Capital Management and the property developer IDM, decided to pull out after conducting a strategic review.

"The recent upheaval in world credit markets has made it increasingly difficult for Crown and its partners to develop a commercially viable project," Crown Chief Executive Rowen Craigie said in a statement to the Australian Stock Exchange Wednesday.

Crown said it will write off its A$44 million (US$42.1 million) investment in the project. The development at the 27-acre site, which Reuters reported was valued at $5 billion, had included plans for the tallest tower in Las Vegas and an integrated hotel-and-casino complex

Recession Hits Las Vegas Shows

The halls of the JCK Las Vegas show this Saturday were clearly less crowded than last year, and almost all exhibitors noted a decrease of traffic into their booths. Walk-ins, visitors without prior appointments, were not only less present in lower numbers, but a number of exhibitors also noted they were less inclined to place orders.

A large Indian manufacturer commented that even the larger and much sought after 2 and 3 carat goods that they had on display were not being snatched off the shelves. While that comment may not have reflected sales of bigger goods at the show, it does reflect the mood. Stones of 3 carats and above have proved to be good sellers so far at the show.

Many booths were notably empty, with despondent business owners pacing back and forth waiting for someone to walk in.

Fliers in for pain as airlines pack it in

A USA TODAY analysis of fall airline schedules shows the nation's most popular vacation destinations will be among the biggest air-service losers. Many flights to Honolulu, Orlando, Las Vegas and other favorite vacation venues have vanished or will soon because cheap tickets bought by tourists don't cover the cost of getting there.

NOTE: I commented on this very same issue late last month:

Airlines: More problems for Las Vegas Strip

The nationwide economic downturn, combined with extremely high fuel prices and declining profit margins, has caused five airlines with services to/from Las Vegas to file for bankruptcy or cease operations since December. Additionally, US Airways recently announced it would reduce flights servicing the valley by some 20% come August, while American stated it would cut some flights after the peak season is over.

All this bad news leads to less airline competition and fewer available seats, that when combined with new fuel surcharges and luggage fees will soon put an end to cheap flights to and from Las Vegas -- reducing the number of tourists visiting and cutting into the discretionary budgets of those who decide to come anyway -- compounding the situation we're already starting to see:

Las Vegas Sands posts losses

Even Sin City is struggling throughout the US economic downturn as fewer tourists are visiting the world’s gambling capital. As a result, Las Vegas Sands, has gone into the red.

The hotel and casino company announced losses of $11.2m in the first quarter of the year, compared with a $90.9m profit a year earlier.

A weak US economy, competition in the Chinese gambling centre of Macau and rising construction costs are to blame for the losses.

William Weidner, Las Vegas Sands’ president and chief operating officer, said hotel occupancy was lower as fewer tourists came to Las Vegas and first-quarter operating results reflect both an intensely competitive operating environment in Macau as well as a weaker environment here in the US.

Moderation troubling for Vegas

LAS VEGAS — For decades, this gambling center seemed nearly immune to the nation's economic swings. But these days, the city built on excess is seeing a troubling sign: moderation.

Gambling revenue and hotel occupancy are down. Resorts are slashing room rates and offering coupons or free nights. Casino operators are firing hundreds of workers, and their stock prices have plummeted since October. Credit is drying up for hotel and condominium projects planned before the slowdown hit.

Room rates could plummet in Las Vegas as spending drops

With gaming revenues dipping in Las Vegas, the city could see room rates this summer that will be the lowest in six or seven years, one expert said. Tourists are still coming, and the rate of 9.6 million visitors in the first quarter wasn't lower than the same quarter in 2007, but visitors are spending less when they come.

Las Vegas gaming market fails to impress Wall Street

Wall Street investors do not expect a turnaround in the Las Vegas gaming market anytime soon. They also aren't impressed by the figures coming out of Macau.

"The overall economic climate remains soft, consumer confidence levels fell, gas prices continued to climb and concerns about demand for the sector persisted," Applied Analysis partner Brian Gordon said in the report.

Economic chill freezes Vegas budget

In the coming year, Las Vegans can expect it to take more time to obtain business licenses.

It’ll take longer for graffiti to be cleaned up and for city workers to replace damaged street signs. Hours at several city pools will be cut, local parks and trails won’t be as well maintained and expansion of the city jail will be delayed.

These are just a few of the ways the local economic downturn will affect residents as Las Vegas confronts a budget crunch — one that might not end anytime soon.

According to the city’s top finance official, fiscal 2009, which starts July 1, won’t be the worst of it. Although the budget slump will bottom out in fiscal 2010, further cuts could be needed through 2012, he said.

“I don’t see it bouncing back quickly,” said Mark Vincent, the city’s finance and business services director.

In the $1.5 billion 2009 budget approved by the city council May 20, expenses are expected to outpace revenues by about $20 million.

To cope with the shortfall, the city is freezing the equivalent of 186 positions, cutting travel and training programs, and reducing merit raises for nonunion workers.

Las Vegas called 'mortgage fraud ground zero'

In the shadow of Sunrise Mountain, where Rolling Hills Drive turns into Gold Mine Drive, a plain two-story home sits unoccupied, like thousands of other houses here in southern Nevada.

Some of these empty homes have "for sale" signs. Others bear signs saying "foreclosure." Authorities say hundreds of them, including this one on Rolling Hills Drive, should have a different sign out front, one that reads "fraud."

Prosecutors contend this house was sold last year to a straw buyer as part of a sprawling mortgage fraud perpetrated by a husband-and-wife team involving 277 properties in greater Las Vegas.

In recent years, there have been so many mortgage fraud cases, the bureau and local prosecutors have had to establish a special task force to combat the problem.

Scott Hunter, the FBI's supervisory special agent here, describes the region as "mortgage fraud ground zero."

The problem is so widespread that everyone seems to know someone affected by it. Even one of the FBI's Las Vegas agents has a connection: Special Agent Henry Schlumpf's wife was the real estate broker who sold the Rolling Hills Drive house last year to a straw buyer representing Mazzarella and Grimm.

"We've got people who walked into neighborhoods who paid $200,000 to $400,000 more than they ever should have paid," says the FBI's Hunter. "That story is going on all over Las Vegas. Everybody thought the market was hot, but a lot of that was being manipulated."

Many of those who overpaid are stuck with mortgages larger than what their homes are worth. Those who took out home-equity lines of credit based on inflated valuations of their homes are now caught in a financial squeeze. Las Vegas had one of the nation's highest foreclosure rates last year, with 4.2% of its homes being repossessed by banks, up 169% from 2006.

"There's a close correlation between states with foreclosure problems and states with mortgage fraud problems," says Sam Garcia of "There's a good portion of foreclosures that probably resulted from some form of mortgage fraud."


The Las Vegas downturn has merely just begun. Stay tuned as we keep an eye on the unfolding (soon-to-be) economic crisis.



HOG2 said...

I have a technology solution which can reverse the bad economic outlook for Las Vegas. Several of these could eventually provide low-cost electricity for everyone in the city, provide additional cooling on very hot days, and serve as tourist attraction as well, since its presence (size and activity) would be impressive, and could also be illuminated with multi- colored lights at night.

It could be built in about a year and a half (assuming it could be fast-tracked), and only cost 20-40 million dollars (since it is mostly empty space inside). It runs on renewable source of energy and is intrinsically safe.

I could give a presentation on this technology before a group of casino owners and city officials if you are interested.

Ultimately it could be used to generate low-cost electricity that could be exported to California at a large profit. Royalties for having helped developed the technology may also be possible. It is already patented by a Canadian engineer. Circ du Soliel may be especially interested in providing financing for this reason, so they should be present, if possible. I live in California.

I can be emailed at under_hog (at) magoo dot com (you know what I mean) I have a Masters Degree in Engineering from MIT

Anonymous said...

Screw vegas!,
Vegas is right up there with AIG and the big three for things our country could do without.
The social and cultural filth that Vagas has pumped into America over the years is just one part of our current economic problems.
When it is finished burning , i will be there to piss on the ashes.